Why NFTs have value?

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A basic idea in crypto is that things can be simultaneously (1) lucrative and (2) a joke. Like if someone pitched you on Dogecoin as an investment opportunity, you would say “well what is good about Dogecoin,” and they’d say “it has a picture of a dog,” and you’d say “what,” and they’d be like “ha ha ha,” but also Dogecoin does have a $12 billion market capitalization. For a while its price would go up whenever Elon Musk tweeted about it. Was he kidding? Just the wrong question:

One question that is never worth asking about anything related to cryptocurrency is, “is this a joke?” Essentially everything in cryptocurrency is simultaneously serious and a joke. This is partly explained by the history of crypto—crypto is Extremely Online, and everything Extremely Online is both serious and a joke—but it is also something essential to its nature. If I told you that there was a vast oil reservoir in my backyard, that would be either true or not true. Oil is a real physical substance; you can look at it and touch it and burn it as fuel. But if I told you I had a vast stash of Trashcoins, and proposed to give you some for a sandwich or a yacht, we would be on less solid ground. Whether the Trashcoins are a valuable currency exchangeable for sandwiches and yachts, or just a joke I made up, is a social fact; it depends on what you think about Trashcoins, and perhaps on whether you find them funny. Crypto is a form of collective storytelling; its truth or falsity does not depend on externally verifiable facts in the world but rather on people’s attitudes toward it. It’s a parody if you think it’s a parody, but if you think it’s real then it’s real.

Here I want to be a bit speculative, and I also want to write in all caps: NONE OF THIS IS LEGAL ADVICE. But if you have a certain sort of mind, you might notice a potential legal arbitrage here. The arbitrage is:

  1. You intentionally sell people a worthless thing, for real money, which you keep.
  2. If anyone complains — if you get sued or arrested — then you say you were kidding. (But you keep the money, which after all is a crucial element of the joke.)
  3. You kind of were! And kind of weren’t! 

Again! I am not recommending this as a strategy! I am just observing certain patterns in the world! But for a while during the initial-coin-offering boom there were a lot of ICOs that explicitly said things like “we are offering a token that is worthless, so we can have money,” and, you know, I hope they had good lawyers.

Or take non-fungible tokens. One common approach with NFTs is that there is some sort of physical or electronic object, and you sell an NFT “of” it. The relationship between the NFT and the object is that the NFT is a label referring to the object. That’s it. Often you also destroy the physical object: You make or buy a painting, burn it to ashes, and sell an NFT “of” it; now the NFT is the only … version? … of the artwork. The “object-fire-token-money cycle,” I call it. But this is not essential. We talked once about a Bohemian prince who wanted money to restore his ancestral castle, so he sold NFTs “of” his art collection. If you bought an NFT of one of his artworks, (1) you gave him money, (2) he kept the money and (3) he also kept the artwork. But you got the NFT! Was he kidding? Wrong question!

Or early in the NFT craze, people would (try to) sell NFTs “of” the Brooklyn Bridge. They did not own the Brooklyn Bridge, but that’s okay, since they were not selling the Brooklyn Bridge: They were selling an NFT of it. Or people would sell NFTs “of” copyrighted digital art that someone else had created, without acquiring the rights to it or compensating the artist. You might say — and sometimes NFT platforms did say — well, that’s theft, or fraud, or at least copyright violation; surely the artist who made the underlying work should decide whether to sell NFTs of it, and get any proceeds.

But the counter-argument is: No, the NFT is a separate thing, not the work of art, but a sort of meta-joke about crypto and the financialization of art. Selling NFTs of someone else’s art is a joke on a continuum with selling NFTs of the Brooklyn Bridge, or selling Dogecoin for that matter. You have made a transformative joke: The NFT that you are selling is not someone else’s art, it’s your own joke about NFTs (and their art). So you own it free and clear, and if you sell it you are not deceiving the buyer or stealing from the artist.

Again! Not endorsing this line of thinking! Just describing the world! The Wall Street Journal reports:

A self-described entrepreneur and artist in 2021 set out to offer another way to own a Birkin, with a digital nonfungible token. Mason Rothschild created a series of 100 digital images he called MetaBirkins, depicting fur-covered purses in the same shape and style as the Hermès luxury product, which he sold as digital tokens on virtual marketplaces. The NFTs sometimes have sold at prices similar to the real handbags.

Beginning Monday, Mr. Rothschild’s MetaBirkins go on trial in New York in a case at the intersection of trademark law and constitutional protections for freedom of expression. Hermès is seeking to stop Mr. Rothschild from using its brand, the destruction of the NFTs and his profits plus other financial damages. Mr. Rothschild says his MetaBirkins are artwork protected by the First Amendment. …

In the Birkin matter, Mr. Rothschild received a percentage of each NFT sale. He said his project was designed to explore the issue of conspicuous consumption. The images, he said, aren’t replica Birkins, but rather art that depicts an imaginary bag.

“My MetaBirkins project as a whole was an artistic experiment to explore where the value in the Birkin handbag actually lies—in the handcrafted physical object, or in the image it projects?” Mr. Rothschild said in a legal declaration.

Sure! You should hack his crypto wallet and steal all the money he got for the MetaBirkins, and then say “well that too was an artistic exploration of where the value actually lies, and I found it, and now it lies in my wallet.” Not legal advice!